Rise in government’s real spending in Quarter One 2012

By | Published: May 25, 2012

The revised GDP figures have attracted headlines because the downturn was slightly worse than the first calculation. There has been far less reporting of the fact that government spending added a positive 1.6% to the figures, an annualised 1.8%, reinforcing the view set out here that real public spending in total has been growing. Indeed, the rate of growth accelerated in Quarter One. This, of course, did not prevent an overall downturn, as the private sector is still struggling with a shortage of money, tightly regulated banks and the tax rises.

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55 Comments

As you say “This, of course, did not prevent an overall downturn, as the private sector is still struggling with a shortage of money, tightly regulated banks and the tax rises.”

The private sector cannot grow with the lack of demand, the bloated state sector on its back, absurd employments laws, expensive “green” energy, an inefficient and expensive legal system, silly regulations everywhere, bank not lending and pulling back and a complete lack of vision from Cameron. Labour to return shortly too it seems. Also a clearly anti-business business secretary.

Saw Question Time last night, and good old Griff came out with an interesting statistic. To equal the output of just one nuclear power station, it would need a wind farm of some 300 square miles!

And just thinking about the massive subsidies already given to erect these things, and where the components were actually built, it’s soon evident there hasn’t been an advantage to the UK, and there’s unlikely to be much of one in the future.

Indeed on wind they are clearly just silly advertising hoardings, to show government is doing something. Even if what they are doing is, in engineering or economic terms totally mad.

It is, for governments, merely a fortuitous coincidence that the turbines have to be on very visible windy high areas. Just rotating crosses of another new mad religion.

Shame no one on of the panel (not even the supposed Tory) could quite bring themselves to say that employers should be able to fire people very easily as it is clearly in the interest of the majority.

Also that people should be allowed to sell their cheese grater Olympic torches – after all is the jumped up school sports day not a big celebration of commercialism from McDonalds and Coca Cola downwards to the ebay second hand torch sellers? All be it hugely over subsidised by taxpayers.

Why on earth should they be forced to keep the graters if some one else wants them more – and they can use the money far better?

There is not a particular shortage of demand on a worldwide basis.
There isn’t really a shortage of investment.

There is a problem with supply side issues, which mean that any investment or demand goes elsewhere:
-employment laws, so we can’t employ people flexibly
-wage and “benefit” competition from public sector workers
-tax competition from overseas
-overheads due at root to high property prices in the UK

Well given how the wages have been falling in real terms it’s no surprise that demand has also been falling. Simply put employees can’t buy a company’s products if the company doesn’t pay them enough to be able to afford these products.

Bazman – Let’s tax, borrow and spend more on the public sector in order to create the necessary customer base for the private sector to survive. The economic equivalent of the perpetual motion machine ! Gravity defying !!!

You really are clueless. I don’t think you realise what is about to hit us from the EZ – and when it does know this: it will be because of our open borders and our public services, mostly our generous NHS and welfare system, and because (people-ed)like you have been running this country.

There is nothing that can be done to stop it. I fear that it is going to render all discussions here irrelevant.

In real life I rarely talk politics. The internet is where I get it out of my system. Otherwise I sit and listen and am quiet and unassuming.

EVERYONE at my level is talking about mass immigration. It is greatly concerning and comes up in very many conversations without prompting by me.

No one was fooled by Mr Cameron’s pledge to reduce it to tens of thousands and then his addition of the caveat “from outside the EU.”

Within the next three years it seems that Britain is going to melt down with a Tory PM in charge. Discussions about resource management – ie water – will become irrelevant (in fact, to a large degree, they are already.)

The failure to include dramatically rising population levels apropos resource management diminishes all arguments and renders all discourse pointless. I feel that it is not a subject which can be dealt with as a ‘one off’ and in isolation.

Having voted Tory all my life I am at a loss to see any reason why I should do so again. This feeling covers a range of issues which are important to me.

What exactly does the Tory party offer the aspirant working class and the lower middle class ?

Have you seen the latest from the government on immigration?…..They say that they are looking at contingency plans to control a potential influx from the Eurozone area (Greeks bearing gifts?)…..Gosh, they must have been listening to my horizon scanning from a previous post (hahaha).

All completely delusional of course, they have no power whatsoever under European Law to do diddly squat to stop EU nationals coming here to exercise treaty rights unless, and only in very exceptional circumstances, there is an issue around public policy, public security or public health. Even then, the EU national would have a right of appeal……So effectively, no control whatsoever.

Why do they communicate this stuff, to fill a vacuum. Oh no, what am I saying, of course they will be able to control EU nationals they have so many staff on the frontline. They only cut the frontline by 16-20% anyway so to add in full checks on absolutely everyone, probably do all the employment checks instead of the employer if the latest Beecroft report is to be believed….No problem.

We shouldn’t be too harsh on the government, they weren’t to know in 2010 that there was a risk of a Euro crisis, the possibility of people fleeing the Eurozone (including lots of third countrty nationals), a worldwide recession, potentially low (if any) growth here or in Europe, potetially large movements of youth looking for work……I mean after all it was only two years after (what is now) the deepest longest recession in over 100 years began with the Great Crash. I mean they hardly had any warning signs to prepare…..Inept

Zorro – The figures are worse than they seem. The displacement of British citizens is in the order of 360,000 per year. That means a total influx of around 600,000 pa.

It is axiomatic that those outgoing are taking skills and wealth with them – their destinations are likely to have proper points systems in place or are unlikely to offer welfare or a similarly open jobs market.

We seem to have little in the way of ‘quality control’ in place here. Whilst I’m the first to agree that many incomers are nice and hard working there is a disturbing number arriving from countries from which close vetting ought to be taking place but which isn’t.

This fantasy of the free market supplying enough services and jobs to fill the gap left by cutting everything is a non starter. You think society is going to accept this reverse in living and health standards whilst a large percentage, as in the majority tell the rest to tighten their belts? I think not and why should they? Subsistence living already exists in Britain, below that is an uncharted territory of civil unrest. Jealousy is for teenagers and fools, but why should in an advanced society such as Britain their should be such wealth inequalities only explainable by the circumstances of individuals? Ram it.

How can government spending be a positive? It’s money that has been stolen from present or future taxpayers, cycled through an inefficiency machine and wasted on political whims.
The GDP figures are pointless and misleading. All they measure is the rate we’re spending money not productive activity.
If we gave every unemployed person a shovel, told them to dig a hole then fill it in every day for a year and paid them a £500 a day GDP would go up, unemployment statistics would go down but does anyone believe it would be a good use of resources?

How can government spending be a positive ? May I suggest a project like the Thames estuary airport would be dramatically positive and reap long term benefits, repaying handsomely the sums invested. Our problem is we do not have the leadership to grasp these opportunities.

Indeed but as it stands government expenditure goes on to the growth figures. Even if is is just tipping borrowed money down the wind farm, carbon capture and all the other pointless holes they dig all over the place.

So the balance of tax paying productive sectors to the largely unproductive over paid and pensioned state sector is still getting even worse by the day. So it will be an even bigger mess when Labour take over.

Indeed, but as it stands government expenditureis included in the growth figures. Even if is is just tipping borrowed money down the wind farm, carbon capture and all the other pointless holes they dig all over the place.

So the balance of tax paying productive sectors to the largely unproductive over paid and pensioned state sector is still getting even worse by the day. So it will be an even bigger mess when Labour take over.

Many private sector companies have only one customer. The state, so are they private or state funded and are the taxes they pay just our own money? Which begs the question as to why they are allowed to pay such low pensions and externalise more cost upon the state in the future?

I’m grateful to a fellow blogger who placed a link to an excellent YouTube clip entitled ‘Home or away?’

The latter part shows the BBC’s Andrew Neil holding the Labour Shadow Scottish Secretary to account over government cuts. She simply didn’t know their extent, and guessed at 10%. Andrew Neil revealed to her it was actually just 1%.

I think it is going to get a lot worse before it gets better. The reasons – an expensive energy regime, over-regulation, high taxation and so forth – have been described every day here.

I read that London is now failing to attract businesses wanting to raise capital. Places like New York, Hong Kong and Singapore have won business in competition with the London market. These are straws in a wind that, sooner or later, will turn into a gale. Add in the seizing up of interbank lending, the EU credit crunch and the government can expect a sharp decline in tax revenues from its much abused golden goose, the City.

You assume (that’s all you do – you haven’t investigated this properly to establish causality, have you John?) that the causality goes from government spending to economic growth.

Despite my many, many attempts to point this out, you plough on, ignoring them. How do you know that the causality isn’t the other way? Spending rises because of additional spending commitments (usually index linked) in the form of more folk unemployed for longer?

Given that GDP growth was -0.3% last time out, and that in over a year there is no cumulative growth in the economy, it is highly likely that those claiming benefits has risen.

Ok, scrub the last link – some fool didn’t check the year. Will teach me for taking the first news link on Google and not checking the date.

I would suggest having a little fun at http://timetric.com/topic/labour-market-claimant-count/ on the claimant count. Obviously doesn’t factor in other cyclical spending commitments such as associated NHS and policing costs, and other benefits folk might claim if they are hard up and hence have to claim, but does give some idea that the unemployment situation is hardly rosy, especially amongst those out of work 12 months or more.

Bottom line is I’d like to be convinced by you John that causality runs the way you think it does.

Why is the government pressing on with compulsory auto-enrolment into workplace pensions? My employer has told me that they want 2% of my earnings from June onwards which will steadily increase in size to 2017 unless I opt out now.

Apart from being a worthless money purchase arrangement, which guarantee the workers in nothing in retirement, the compulsory contributions are nothing but deflationary. My contributions could be better used in stimulating the economy now and the contributions from the boss are nothing but a tax on jobs. What is going to get the economy going, employers spending money on new employees or on worthless pension contributions for the people they already have? The only jobs being created here are for TATA in India who will be administrating NEST.

When you see the coalition keeping useless hangovers from the last government like this, you can hardly not think otherwise that we do have nothing but a continuity New Labour administration.

Re “If we gave every unemployed person a shovel …..”
That would still be vastly better then paying them £500 a day to, for example
Determine how much we pay for a bottle of wine
Extend the war on smokers
Expand government spying on our communications.

If Government spending is still going up, what is it exactly that enables Mr Balls to say the opposite? Are you able, but in your words on a consistent basis in hopes of a level playing field, to put in to words what it is that Balls is saying that is different from what you are saying? Is there some reconciling item as it were that either you or he is including that the other isn’t? I asked Mr Balls’ office this question but with no reply.

A different tack–in Accountancy terms are there any Q1 Extraordinary or Exceptional Items (one-off close-down costs or redundancy payments and the like) that would mean that the Government’s future expenditure will soon start going down?

As Mike Stallard has noted, Labour are just waiting in the wings. If they get in next time we are doomed, so paraphrasing Princess Leia – Help us, JR and fellow Conservative MPs – you are our only hope!
Much as I want to see our debts reduced, the chief aim of the party has to be to get elected next time round.
One major positive step that could be taken is , as you have suggested, to break up RBS in particular, and sell off any bits of it that can be sold, while keeping the Nat West brand in England. That would be viewed very positively.

Lots of words about numbers being very provisional, mainly being estimates. It amazes me that we have government that can’t begin to match the management accounting systems that are standard in any reasonably run multinational. However, here is the limited breakdown they provide for this April compared with last:

Interest payments £5.2bn up from £4.7bn by £0.4bn or 9.0%
Net social benefits £15.5bn up from £14.7bn by £0.8bn or 5.4% (mainly RPI indexation)
Other £35.6bn up from £34.7bn by £0.9bn or 2.5%
Total current expenditure £56.2bn up from £54.2bn by £2.1bn or 3.8%

The Govt is finding it impossible to curtail spending because of mass immigration. 1m people are being added every 4yrs. The 5m arrivals since 1997 have a very high birth-rate. Its going to get a lot, lot worse; economically for the Country and politically for the Tories.

If spending other people’s money on other people constitutes GDP and this is somehow deemed to be a good thing then G-d help us.

It is the topsy turvey way Govt have approached the deficit problem that riles me.

Any sensible business would cut overhead first ,as deeply as possible.
This is recurrent expenditure .
Lower the headcount now.Savings accrue as soon as the cut is made.

Next to go must be capital expenditure with a payback of more than say 5 years .
Goodbye HS2 until the deficit has gone.
Surely extra runways in London area would be a good investment.

Given that people spend their own money more efficiently than Government then transfer public sector spend to the private sector through lower corporation tax ,income tax ,capital gains tax ,inheritance etc.

None of this involves the EU -it is all in our hands .
So why is it not done ?Union pressure?
Has anyone any ideas ?

The perhaps economy destroying effects of the BoE/MPC QE-ZIRP policy need to be considered;
(1) Keeping CPI inflation above wage inflation thus reducing real wages and hence quantity demanded, hence reducing labour demand and hence keeping wage inflation down. (In other words putting the destruction of consumer demand in a positive feedback loop).
(2) Preventing target savers and pensioners spending.
(3) Introducing asset speculation and thus making investment decisions more challenging.
(4) Preventing the house market clearing, so keeping resource misallocated.
(5) Protecting some businesses from collapse / buy out, hence limiting innovation and efficiency gains.
For me, it remains unclear why they didn’t choose to renormalize monetary policy back in mid-2010.
But the Government has also failed,
(1) It has not kept the benefits bill fixed but allowed endogenous effects to cause it to grow (the automatic stabilisers). Cap the total and divide?!
(2) (1) & ring fencing, e.g. health, keeps expenditure high and forces Government investment to be cut in an apparently untargeted way.
(3) Too slow on the red tape reduction, planning easing and tax/NI simplification.
What I would like to see;
(1) Rapid renormalisation of monetary policy (coupled with explanation that some businesses going bust and house prices falling can be part of recovery, and not heartless toryism).
(2) Saving money from benefits and/or health, and redirection to spending on transport infrastructure (generally monopoly breaking and so less likely to crowd out private investment).
(3) Cutting red tape, easing planning etc. immediately (and explaining to media that upstream and downstream constraints can exist at the same time).
(4) Simplification of taxation, in particular merging NI with other taxes. Make it more obviously easy for people to mix self-employment and employment (Lord Sugar’s self-employment crib sheet idea is only half-way there).
(5) Reduction in capital gains and corporate tax, even if at some point this means a further increase in VAT.
(6) Capital (wealth) tax on residential property, but dump stamp duty. If not possible immediately at least capital gains on 1st properties. Taxing productive capital slows growth, but taxing less/non-productive may redirect resources as well as being seen as progressive!
(7) BoE to sell Govt debt and buy debt of high tech, low cash companies (- the debt of rising stars and question marks in Boston Box language). But in twisting QE the debt of other companies’ (the cash cows) should not be bought; the 1980s LBO time taught us the role that leverage can have on improved performance and governance.

The government could always build some social housing – borrowing the money over 30 years at the low, low, interest rates available to it today.

The borrowing would be more than paid back by the rental income / eventual sales over 30 years, the moribund building sector would be able to employ all the people it’s layed off since 2008, reducing the social security bill and increasing tax receipts.

The large number of people currently ‘under housed’ would be able to move in to homes with reasonable rents that could eventually become owned by them.

As long as the government didn’t do a Japan and kill the growth produced with higher taxes and tight monetary policies, you might actually get real private sector led growth on the back of it – which after 4 years of essentially no growth at all, would be nice.

Social housing tenants rarely pay rent sufficient to pay anything much back, above admin & maintenance costs. Anyway the rent is often comes from another bit of the government expenditure – the rent benefits bill.

There probably are significant numbers in prison who in former times might have been looked after in a mental institution. There are also significant numbers of foreigners who perhaps might have been repatriated instead. Equally, there are probably significant numbers who ought to be in prison but aren’t because of lax sentencing policy.

A 1.6% increase in government spending can in no way be described as a positive contribution other than mathematically. I don’t see how you as a member of a government that claims to be commited to reducing the deficit can claim such a figure as being good. There may be a few areas of the economy where this might be reviewed in a better light but the major one of these, construction, was the main contributer to the poor GDP figure.

Didn’t it used to be true, that there used to be a report on income and expenditure on the BBC of total govt spending once a month? Maybe we ought to have it back – so the average bloke can see/hear it on his regular news input?? That way, the electorate would know how bad the situation is?!?

I see from Finstats that “public sector consolidated gross debt” has gone up from a measly £536 billion in 05/06 to a chunky £3,348 billion today. Also, the recently defined new element, the “public sector banking groups gross debt” has gone from zero to £2,437 billion in the same period.

What was it some guy said; the best way to rob a bank is to own one. He should have added, … and sell it to some mug punter government.

Many of these billions have come from state funded projects and the massive waste of money by the state as many see it, on pointless and absurd projects. The next ones being privately funded healthcare and roads to name a few. How are we doing with the lowers 50p rate? How many jobs have been created so far and in want sectors? A fair question as religious belief when it comes to cash does not apply. Go and tell your boss you feel something is right without proof and see how far you get.

Why is there a shortage of money if it can be created out of thin air by solvent banks as interest bearing debt? or QE.

Why not give QE money to us all equally and at the same time, for debt paydown first or then spending? (ref Steve Keen)

Banks may be tightly regulated but they are not allowed to fail! This would enable the talent to be redeployed at market rates with mistakes wiped out. Why not find some smaller well run solvent banks and give them QE money to fund start ups and speed the change.

All the regulators should looking at MNC cash balances and effective % tax paid insist on the reinvestment e.g water industry -resovoirs/leak management, otherwise tax the cash balances.

In a recession prices should be falling, why are essentials still rising if regulation is tight and policy is set to enable competition and a level playing field?

About John Redwood

John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.